Business leaders have had to navigate many competing forces during the past year—soaring markets and mixed economic signals, AI opportunities and fatigued consumers. The complexity will likely continue in 2026.
We asked Harvard Business School faculty to share the trends leaders can expect in the coming year and offer research-backed advice for managing during these uncertain times. Their thoughts have been lightly edited for length and clarity.
Alberto Cavallo: Tariff will likely fuel gradual price increases
In 2026, a central challenge will be managing the rise in costs generated by the 2025 tariff actions. The impact is unfolding gradually, but it is persistent and broad-based. This outlook assumes that the trade war will not escalate further, consistent with recently lower tensions and the possibility that some measures may be struck down in the courts.
What the research says
Using high-frequency pricing data, we find that the 2025 tariff increases have already pushed up retail prices of imported goods by about 5.4% compared to their pre-tariff trend. Domestic goods in import-intensive sectors rose about 3% over the same period. Only about one-fifth of tariff costs have reached retail shelves so far, with most of the burden still absorbed upstream by manufacturers and wholesalers.
Based on these dynamics, our estimated cumulative contribution of the 2025 tariffs to overall inflation is roughly 0.7 percentage points, keeping the Consumer Price Index annual rate persistently close to 3% and making the Federal Reserve’s task of guiding inflation back to target more challenging.
What firms should expect
If no new tariff escalations occur, the main risk for 2026 will come from the continued implementation of last year’s measures, driven by the incomplete and gradual nature of tariff pass-through. Sectors with high import content, including household furnishings and electronics, will feel the strongest pressure. Firms should map tariff exposure across products, monitor cost drift more frequently, and revisit sourcing and pricing plans with shorter adjustment cycles.
They should also communicate clearly with clients about how tariffs affect their cost structure. Greater transparency in cost changes can reduce customer backlash and help clients understand the underlying drivers of price adjustments.
What consumers should expect
Consumers will continue to experience slowly rising prices, especially for lower-priced options in a category. These products tend to have lower margins and therefore give firms less buffer to absorb cost shocks, which is why they have shown the highest pass-through rates so far. This pattern increases the burden on lower-income households, which rely on these varieties more heavily. Even if the increases are gradual, they accumulate and can place significant pressure on household budgets over time, with effects that will remain uneven across income groups.
Alberto Cavallo is the Thomas S. Murphy Professor of Business Administration.
Jaya Wen and Iyoha Ebehi: Treat tariff volatility as a design constraint
Firms should not plan on a return to a low-tariff world in 2026. In our work on trade rerouting, we find that when the United States levied tariffs on China, some relabeling did occur, but supply chains also shifted where value-added production took place.
This means tariffs had real bite: firms could not simply wash products through third countries and fully escape the new taxes. That, in turn, implies continued upward pressure on prices for both producers and consumers.
External evidence reinforces this picture. HBS Professor Alberto Cavallo and his coauthors show that recent US tariffs are largely passed through to import prices, with retailers partially absorbing the shock in margins and consumers facing gradual but persistent price increases. The work finds that retail prices in exposed categories can rise by up to 20% within six months.
For 2026, the practical takeaway for leaders is to treat tariff volatility as a design constraint for your operating model, not a temporary shock. The baseline scenario is continued policy churn layered on top of elevated price levels.
Operators should:
Diversify sourcing across countries and suppliers deliberately by prioritizing locations and partners that still make sense under several plausible tariff paths.
Where possible, embed tariff pass-through or share clauses in long-term contracts so that you are not absorbing the full shock when schedules change.
Invest in granular data systems that can track exposure by product, harmonized system code, and route in close to real time, and link that directly to pricing and margin dashboards.
On the commercial side, plan for:
A consumer who is both price sensitive and fatigued by inflation.
Scenario testing your pricing strategy and being explicit about which categories can bear pass-through and where you may need to protect volume.
Demand for retail-facing firms to shift toward more affordable segments and private label offerings as tariffs filter through to shelf prices.
Finally, build governance for uncertainty. Make tariff and trade risk a standing item for the board or risk committee. Align your government affairs, supply chain, and finance teams around a shared playbook so that the next policy announcement triggers an agreed-upon response, rather than ad hoc improvisation.
Jaya Wen and Ebehi Iyoha are assistant professors in the Business, Government, and International Economy and Entrepreneurial Management Units, respectively.
Jeff Bussgang: Huge opportunities, more risks for entrepreneurs
2026 will be the year of the 10x founder—founders who operate with a level of velocity and productivity that is an order of magnitude greater than in prior generations. These founders are harnessing modern AI tools not simply to automate work, but to accelerate learning. Product-market fit is being found faster than ever as cycles of customer discovery, prototyping, and iteration continue to compress.
In 2025, coding clearly emerged as AI’s killer app, dramatically lowering the cost and time required to build software. In 2026, we will see this same transformation extend across the rest of the organization. Customer support, sales, marketing, finance, and operations will increasingly be powered by AI-first workflows. AI agents will proliferate, and—starting in startups—we will see the normalization of organizations that employ more AI agents than humans.
This shift will fundamentally change how companies are built and scaled. Small teams will be able to do far more, far earlier, creating both enormous opportunity and new risk. The winners will be founders who pair this new leverage with discipline: clear hypotheses, rapid testing, and rigorous interpretation of results.
Finally, 2026 will mark the transition from AI pilots to enterprise-wide production deployments, as infrastructure, trust, and governance catch up with capability. It’s going to be a wild—and consequential—year!
Jeffrey J. Bussgang is a senior lecturer in the Entrepreneurial Management Unit.
Maria Roche: Innovation will still need interaction
Generative AI and digital tools are lowering the cost of experimentation, but they are not flattening the importance of place. We continue to see that high-impact ideas emerge disproportionately from dense pockets of interaction. These are teams, offices, and ecosystems designed to foster frequent, informal exchanges.
In 2026, firms and managers may expect three things:
Innovation will increasingly be “AI-augmented,” not AI-automated. Winners will treat AI as a collaborator that accelerates search, prototyping, and learning cycles, while investing heavily in human judgment and domain expertise when it comes to selection and implementation.
Uncertainty about markets, regulation, and technology will persist. The most successful innovators will learn to leverage the murkiness to their advantage. This will put a premium on portfolio thinking: running many small, disciplined experiments rather than betting the company on a single grand project.
The geography of work will keep evolving as we understand the contingencies of in-person work better. Proximity will still matter, especially for creativity and innovation, but it may be viewed less as a one-size-fits-all solution for other types of work, especially less interdependent tasks.
Preparing for 2026 means designing organizations that are both option-rich and connection-rich: option-rich in the sense of having multiple strategic paths open, and connection-rich in the sense of cultivating dense networks inside the firm and with external partners. Managers who learn to orchestrate these two forms of richness will be best positioned to turn ongoing uncertainty into an advantage.
Maria Roche is an assistant professor in the Strategy Unit.
Jon M. Jachimowicz: Passion can’t be the short-term fix for leaders
I worry that organizations will rely on appeals to passion as a Band-Aid. They will say, “We know you deeply care about this work, and this work is really important,” but then not provide the environment or context to support that passion. And the appeals to passion may ring hollow.
When you appeal to an employee's passion for their work, you are also raising your own bar, personally and as an organization, for how you engage with that employee.
When you look at the employment relationship as more transactional in nature and make it clear that that’s what you expect, then there is mutual understanding. And if you engage in cost-cutting, everybody understands that this is a transactional relationship. You can still be upset, but it’s on a different level.
Expecting more from employees—and yourself
If you suggest that the employment relationship is not transactional, that we’re working together because we are bound by a shared sense of purpose, you're raising the bar for what you can expect from your employee—and for what your employee, in turn, should be able to expect from you. Any violation of that psychological contract will be a lot more negative than if the employment relationship were transactional.
When organizations, in response to the difficulties, appeal to employees' source of passion, they need to ask themselves:
If I raise the bar for employees, how do I raise the bar for myself?
How do I set the environment for them to actually experience and maintain their passion, rather than just appealing to it?
How do we share responsibility here for that passion to be mutually experienced?
Organizations may try to appeal to passion to encourage their employees to work harder, or to overcome challenges, believing that this excuses them from responsibility. However, the opposite happens: Your employees may hold you to a higher standard, and they have every right to be more disappointed in you when you treat them in a more transactional manner.
Jon M. Jachimowicz is an assistant professor in the Organizational Behavior Unit.
Ashley Whillans: Using time wisely can boost happiness
As we head into 2026, many of us likely feel that there aren't enough hours in the day. That sense of “time stress"—too many things to do and not enough time to do them—can take a measurable toll on our happiness. In our research analyzing 2.5 million Americans, feeling time stressed had a similarly negative effect on well-being as being unemployed.
My research points to three practical strategies to feel more control over time in 2026:
Consider spending money to buy back time. In studies across four countries with over 6,000 people, we found that working adults who spent money on time-saving services, such as housecleaning or meal delivery services, reported greater life satisfaction. And, in a field experiment with 60 working adults, we showed that this effect is causal: People felt happier after making a small time-saving purchase of $40 versus spending $40 on a material purchase for themselves.
Protect your time for what matters most. My recent work tracking people in committed relationships over 11 years shows that time-saving purchases predict long-term increases in relationship satisfaction. But here's the key insight: These benefits were strongest when people used freed-up time to spend quality time together. The benefits of time-saving purchases are not just about crossing items off your to-do list—satisfaction occurs by creating space for the relationships and activities that make us feel happier.
Recognize that how you think about and spend your time is a choice. In a study where we followed graduating students through a major life transition, we found that students who valued time over money were happier a year later, even controlling for baseline levels of happiness. This was because students who valued time made decisions based on what they wanted to do, versus what they felt they “should" do. Small decisions about how we think about our time and how we allocate our hours can compound to create noticeable improvements in satisfaction.
It is my research-informed opinion that the happiest people in 2026 won't necessarily be those who accomplish the most. Instead, I believe that the least stressed and most satisfied among us will be those who deliberately protect their time for what research shows can predict daily and overall well-being: meaningful social relationships, restorative activities, and time spent in the service of others.
Ashley Whillans is the Volpert Family Associate Professor of Business Administration.
Shirley Lu: Imperfect targets can still combat climate change
Many firms publicly announce emissions targets, a process some critics call greenwashing. Looking at targets that ended in 2020, we find that about 60% of firms met their goals, 9% failed, and 31% never reported outcomes.
The few failures disclosed actually generated useful learning about why emissions reductions are so difficult today. FedEx, for example, devoted a page of its 2021 environmental, social, and governance (ESG) report to explaining the challenges of growing demand and lack of sustainable aviation fuel (SAF), drawing media and industry attention to these issues.
By contrast, the 31% of “disappeared” targets are missed learning opportunities. That’s because combating climate change is not a binary outcome: Even reaching 80% to 90% of a target is meaningful progress.
Letting go of the perfect target
Firms used to setting highly achievable earnings targets are taking real risks when they announce emissions targets. They are betting on a future in which climate solutions become available and affordable. If companies only announced climate targets when they were 100% sure they could hit them, very few meaningful targets would exist.
These emissions targets are important because they are also forward-looking demand signals for climate solutions. For example, airline net-zero alliances are effectively saying, “we need SAF.” When climate solutions become available and affordable, companies have more incentives to attain higher achievement of their emissions targets.
Looking ahead, one future is a world where mistrust of emissions targets means few climate solutions are developed. Another future is a world where we give firms’ targets the benefit of the doubt, motivating other firms to bring climate solutions to market at scale and at lower cost, and generating economic value along the way. Strong institutions that monitor and verify progress will make it easier to justify that benefit of the doubt.
Shirley Lu is an assistant professor in the Accounting and Management Unit.
Susanna Gallani: Health care re-centers on the mission
As we move into 2026, health care organizations face a familiar but intensifying landscape of policy volatility, financial strain, and technological disruption. In moments of profound ambiguity, returning to the mission is not merely inspirational—it is a strategic imperative.
Too many health systems have slipped into reactive mode, feeling as though their strategy is continuously dictated by shifting political winds. Re-centering on the mission allows organizations to regain strategic autonomy. It anchors choices about what to prioritize, where to invest, and how to adapt—while maintaining alignment with the goals and objectives of patients, the primary stakeholders in health care.
Toward greater autonomy
For clinicians, mission is not an abstraction. It reconnects them with the reasons they entered medicine or nursing in the first place, offering a powerful antidote to burnout and demotivation. Clinicians rely on expert judgment in complex, uncertain environments. A clear mission strengthens that judgment by clarifying what “good” looks like in the face of competing demands.
Mission-driven management also shifts organizations away from micromanagement and toward greater autonomy, reminding everyone from physicians to environmental services staff that their work contributes to something larger. President John F. Kennedy’s famous exchange with the NASA janitor (“I’m helping put a man on the moon”) captures this beautifully: when purpose is clear, coordination and motivation follow.
While AI may reduce administrative burden, technology alone cannot restore meaning or improve performance. Organizations must redesign performance metrics so that they explicitly connect to the mission and reveal each person’s contribution to it. They can further reinforce alignment through incentive design, rewarding mission-aligned behaviors not only monetarily but also through recognition, growth opportunities, and increased autonomy. These mechanisms help translate the mission from aspiration into daily practice.
Susanna Gallani is the Tai Family Associate Professor of Business Administration in the Accounting and Management Unit.
Image by Ariana Cohen-Halberstam with assets from Unsplash.
